Prosecutors label $650mn McKinsey opioid pact a warning to consultants

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McKinsey has agreed to pay $650mn to settle a US criminal investigation into its work for opioid manufacturers, and a former senior partner has admitted obstructing the investigation by destroying documents, according to court filings on Friday.

In the deferred prosecution agreement with the US Department of Justice, McKinsey accepted responsibility for its actions, which prosecutors said included “knowingly and intentionally conspiring with Purdue Pharma and others to aid and abet misbranding of prescription drugs”.

McKinsey’s advice on how to boost sales of opioids came at a time of a spiralling addiction crisis that has claimed hundreds of thousands of lives in the US. It has previously paid about $1bn in civil settlements over the work, which it ceased in 2019.

The latest agreement curtails McKinsey’s ability to work for other pharmaceuticals companies in the future. The firm will not do “any work related to the marketing, sale, promotion or distribution of controlled substances” under the five-year deferred prosecution deal.

Martin Elling, a former senior partner who advised Purdue Pharma, the maker of OxyContin, has also agreed to plead guilty to one count of knowingly destroying documents with the intent to obstruct justice. He faces a sentence of up to 12 months in prison under the agreement with prosecutors, according to court documents.

In 2018, after news reports that US authorities were investigating Purdue, Elling deleted more than 100 files relating to the work. “He emailed himself an apparent to-do list with the subject line, ‘When home’,” according to one court filing. “The items listed included: ‘delete old pur [Purdue Pharma] documents from laptop’.”

Elling helped McKinsey win an engagement with Purdue that became known as “Evolve to Excellence”, or E2E. This developed plans for how to “turbocharge” OxyContin sales, prosecutors said, by focusing on “high value prescribers, including those who were prescribing opioids for uses that were unsafe, ineffective, and medically unnecessary and that often led to abuse”.

“McKinsey knew the risks and dangers associated with OxyContin, a powerful and addictive opioid,” prosecutors said. But it “chose to continue working with Purdue Pharma to improve sales” of the drug.

The agreement is the first time a management consulting business has been held criminally responsible for advice that resulted in a client’s illegal activity.

“If a consulting firm conspires with a client to engage in criminal conduct, the fact that you’re an outside consultant will not protect you,” Joshua Levy, the US attorney in Massachusetts, said at a press conference on Friday. “We will cut through the slick PowerPoints and the consultant speak and hold you accountable.”

The mounting cost of opioid settlements has strained the finances of McKinsey, which has annual revenues of about $16bn, and created dissent among partners. The latest agreement allows the firm to stagger payments over five years, with only $175mn payable now. It will, however, have to pay interest on the remainder, meaning the total cost of the settlement could be closer to $700mn by 2028.

In explaining why it was deferring prosecution — which allows for the criminal charges to eventually be dropped if McKinsey adheres to the terms of the agreement — the DoJ said McKinsey had implemented “extensive remedial measures”, including voluntarily ending work on opioid matters and firing Elling and another senior partner who communicated about deleting material. The firm has agreed to adopt further client screening processes, risk management measures and training programmes, subject to review by several branches of the US government.

McKinsey said its opioid work was a source of “profound regret”. “Since these issues first arose, we have significantly enhanced our risk management processes to ensure we never find ourselves in this situation again.”

A lawyer for Elling said he had no comment.